INDUSTRIAL INTERNSHIP REPORTON

FUNDAMENTAL ANALYSIS OF INDIAN STEEL INDUSTRY

SUBMITTED BYBHUWAN JOSHIROLL NO. 18070

TRIPLE SPECIALIZATION

UNDER THE ESTEEMED GUIDENCE OFASSISTANT PROFESSORDr. N C RAJYALAKSHMI

CORPORATE GUIDEKP SINGH (TERITORY MANAGER)

ACADEMIC YEAR2009-2011

SIVA SIVANI INSTITUTE OF MANAGEMENTKOMPALLY, SECUNDERABAD

DECLARATION

I undersigned Mr. BHUWAN JOSHI a student of SIVA SIVANI INSTITUTE OF MANAGEMENT PGDM (TRIPLE SPECIALIZATION) declares that I have prepared this Project Report on fundamental Analysis of Indian Steel Industry under the Corporate Guidance of MR. KP Singh (Territory Manager Sharekhan Pvt. Ltd. Hyderabad) and also under the Esteemed Guidance of Assistant Professor Dr. N C Rajyalakshmi.

I also declare that this project report is my own preparation and not copied from anywhere else.

SignatureBhuwan JoshiTPS (Major- Finance)Roll No.18070

Acknowledgement

During summer training in Sharekhan Pvt. Ltd at Ameerpet Branch, I got the opportunity to know what actually happens in the company. I was made aware of the practical implications of what I have learnt.

I am also very much thankful to Mr. KP Singh Territory Manager Hyderabad Business and other members of Ameerpet Office who warmly welcomed me and helped me in making my report successful and in gathering the information regarding the functioning of the share market as well as the Broking House (Sharekhan Pvt. Ltd.)

In the following pages a sincere efforts has been seen made by me to mention the knowledge I acquired during my summer training. The matter mentioned is based on company incentives.

Place: - Hyderabad (Ameerpet) (BHUWAN JOSHI)

Date: - PGDM (TPS)

PREFACE

Life is full of effort and struggle, success and failures. But the sincere efforts done in right direction and at right time will give us fruit and success. As a student of management. I am excepting with something more organized specific and effective effort with desired results towards the work.I had undergone the study at Sharekhan Pvt. Ltd., at Hyderabad (Ameerpet), who gave this opportunity to know what, is actually happening in the company as well as in the share market.

In the following pages, I have tried my level best to include the maximum information I had obtained during my project work at Sharekhan Private Limited.

Table Of Contents Page No.

I Introduction 1. Executive summary …………………………………………………………… 1

2. Company Profile …………………………………………………………… 2

3. Stock analysis …………………………………………………………… 4

4. Objective of the study ………………………………………………………….. 9

5. Overview …………………………………………………………... 10

II Research work6. Research methodology …………………………………………………… …… 12

7. Limitation of the research………………………………………………. ……… 12

8. Approaches to fundamental Analysis ……………………………………… 13

9. Economic analysis …………………………………………………………….. .. 17

10. Industry analysis ……………………………………………………………... 21

11. Company analysis ……………………………………………………………. 25

III Findings and Suggestions12. Findings ………………………………………………………………….. 49

13. Suggestions ………………………………………………………………….. 52

Bibliography

PART IINTRODUCTION

EXECUTIVE SUMMARY

Fundamental analysis is very helpful to the investor, which is reflected in the investment purpose. Fundamental analysis consist of three parts, they are economic, industry and company. Any investors who go to systematic investment, he/she would like to know, the complete scenario of the industry. It is interesting to know how the fundamental analysis helps to forecast the price of equity.

The fundamental analysis consists of three parts; they are economic, industry and company. All the factors are involved in this analysis were identified and studied carefully to identify the factors in the existing environment. The data or information collected was based on the personal interaction with the guide of the company.

Economic analysis was a task to be studied as it affected the company’s tax, and it will effect on the revenue of the industry. Also other factors are considered in the economic analysis. And it will interpret for the fundamental analysis.

Industry analysis was a challenging factor for the research of the fundamental analysis. All the sub-factors of the industry analysis were taken up from the secondary source to analyses the each factor with the industry. And was related those factors with the company. It also analyses the competitiveness of the each company’s strength, like. Quality, services, cost of R/m, etc.

Company analysis is last factors of the fundamental analysis and it is one of the most important parts of the company. An approach was made to understand the existing company and its impact on company’s market share and its performance.

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COMPANY PROFILE

Establishment and network:

Share khan is an 80 year old company and has its link to SSKI. Share Khan started as a retail arm of SSKI and slowly developed into a large organization having 704 share shops in 280 cities across the country. It has about 31,000 employees with a customer base of more than 5,00,000. Share khan deals with wide variety of products namely equities, derivatives, commodities, IPO, mutual fund, research, portfolio management and other structured products. The mission of Share khan is “… to educate and empower the individual investor to make better investment decision through Quality Advice, Innovative products and superior service.”

It offers both offline and online services. It had launched its website www. Sharekhan.com in the year 2000 and now within a timeframe of 8 years almost 50% of the total services are given online to its customers. It is one of the most preferred website by all the customers as it provides a whole range of in depth research reports on top companies and commodities. All the information pertaining to any financial product is easily available on the company’s website.

Operations:

Share Khan offers three modes of trade transaction means. They are –

Share shops – A customer can directly visit any of the share shop to trade .

Online trading – A customer can trade on his own by using the online trading mode.

Dial & trade – A customer can ring up to any dealer or the relationship manager and can execute his trade.

Thus, based on the convenience of the customer he can choose any of the above modes of transaction.

Services:

Share Khan also offers different range of services depending on the profile of the customer. All the services are offered with the help of the exclusive research team consisting of 25 analysts in fundamental, technical and derivatives research team.

These services are –

First step – This service is for those customers who are investing for the first time.

Classic – This service is for customers who transact occasionally.

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Speed trade – This service is for those customers who are very are day traders and participate actively in the market.

Platinum Circle – This service is exclusively for HNI’s who are looking for personalized and exclusive investment and portfolio management services ( PMS)

It provides continuous educational programs to guide their customers by means of seminars and workshops or by means of booklets and reports. Customer care is the top priority for Share Khan.

Awards and recognition for Share khan:

It is being rated among the top twenty wired companies along with Reliance, HLL, and Infosys etc by business today.

It is awarded as one of the most preferred broker in India by the Awaaz Consumer Awards.

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STOCK ANALYSIS

Indian Securities markets are touching new heights as it has surpassed 18000 marks. More and more investors are attracting towards equity investment and trading. But this is not always the case that no one can assure you certain returns there is always essence of uncertainty and risk in investment and that push investors on back seats. Sometimes it becomes very difficult for investors to predict the share price of the particular company in this very volatile market. It raises questions in investor’s mind that

At what price I should buy? When to sell it... hold? But as trading and investments are increasing on the markets as SEBI had taken stern steps to disclose important information to its Shareholder and investor. So they can get as possible as information about the companies of which they are holding the shares or going to buy. And now-a-days brokers and some analyst providing some future predictions of stocks price movements. So now investment has become somewhat easy for investors. How they get it? This is done with a Stock Analysis getting the information about company and its price movements on stock markets and try to predict how would behave on stock markets. So, there is great importance of stock analysis among investors done brokers, experts, analyst, etc.

Types of Stock AnalysisThe methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis

1. TECHNICAL ANALYSIS2. FUNDAMENTAL ANALYSIS

Here I have selected a Fundamental analysis as a subject of project so it will be done in detail with practical analysis of companies. And we would get only some flavor of Technical analysis and then would be understand about Fundamental analysis.

What Is Technical Analysis?“Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.”Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns; others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued - the only thing that matters is a security's past trading data and what information this data can provide about where the security might move in the future.

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The field of technical analysis is based on three assumptions:1. The Market discounts everything.2. Price moves in trends.3. History tends to repeat itself.

The Market Discounts Everything:A major criticism of technical analysis is that it only considers price movement, ignoring the fundamental factors of the company. However, technical analysis assumes that, at any given time, a stock's price reflects everything that has or could affect the company - including fundamental factors. Technical analysts believe that the company's fundamentals, along with broader economic factors and market psychology, are all priced into the stock, removing the need to actually consider these factors separately. This only leaves the analysis of price movement, which technical theory views as a product of the supply and demand for a particular stock in the market.

Price Moves in Trends:In technical analysis, price movements are believed to follow trends. This means that after a trend has been established, the future price movement is more likely to be in the same direction as the trend than to be against it. Most technical trading strategies are based on this assumption.

History Tends To Repeat:Itself another important idea in technical analysis is that history tends to repeat itself, mainly in terms of price movement. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistentReaction to similar market stimuli over time. Technical analysis uses chart patterns to analyze market movements and understand trends. Although many of these charts have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.

Other Usage:Technical analysis can be used on any security with historical trading data. This includes stocks, futures and commodities, fixed-income securities, forex, etc. In this tutorial, we'll usually analyze stocks in our examples, but keep in mind that these concepts can be applied to any type of security. In fact, technical analysis is more frequently associated with commodities and forex, where the participants are predominantly traders. Now that you understand the philosophy behind technical analysis, we'll get into explaining how it really works. One of the best ways to understand what technical analysis is (and is not) is to compare it to fundamental analysis. We'll do this in the next section.

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Strengths of Technical Analysis Focus on Price:

If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental developments. By focusing on price action, technicians are automatically focusing on the future. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. To keep pace with the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden kneejerk reactions, hints usually develop before significant moves. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.

Supply, Demand, and Price Action: Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be gleaned from each bit of information. Separately, these will not be able to tell much. However, taken together, the open, high, low and close reflect forces of supply and demand. The annotated example above shows a stock that opened with a gap up. Before the open, the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strength of demand (buyers). The intraday low reflects the availability of supply (sellers). The close represents the final price agreed upon by the buyers and the sellers. In this case, the close is well below the high and much closer to the low. This tells us that even though demand (buyers) was strong during the day, supply (sellers) ultimately prevailed and forced the price back down. Even after this selling pressure, the close remained above the open. By looking at price action over an extended period of time, we can see the battle between supply and demand unfold. In its most basic form, higher prices reflect increased demand and lower prices reflect increased supply.

Support/Resistance:Simple chart analysis can help identify support and resistance levels. These are usually marked by periods of congestion (trading range) where the prices move within a confined range for an extended period, telling us that the forces of supply and demand are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning.

Pictorial Price History:Even if you are a tried and true fundamental analyst, a price chart can offer plenty of valuable information. The price chart is an easy to read historical account of a security's price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock

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charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following:

· Reactions prior to and after important events.· Past and present volatility.· Historical volume or trading levels.· Relative strength of a stock versus the overall market.

Assist with Entry Point:Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timing can play an important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns.

Weaknesses of Technical Analysis

Analyst Bias:Just as with fundamental analysis, technical analysis is subjective and our personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing a chart. If the analyst is a perpetual bull, then a bullish bias will overshadow the analysis.On the other hand, if the analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt.

Open to Interpretation:Furthering the bias argument is the fact that technical analysis is open to interpretation. Even though there are standards, many times two technicians will look at the same chart and paint two different scenarios or see different patterns. Both will be able to come up with logical support and resistance levels as well as key breaks to justify their position. While this can be frustrating, it should be pointed out that technical analysis is more like an art than a science, somewhat like economics. Is the cup half-empty or half-full? It is in the eye of the beholder.

Too Late:Technical analysis has been criticized for being too late. By the time the trend is identified, a substantial portion of the move has already taken place. After such a large move, the reward to risk ratio is not great. Lateness is a particular criticism of Dow theory.

Always Another Level:Even after a new trend has been identified, there is always another "important" level close at hand. Technicians have been accused of sitting on the fence and never taking an unqualified stance. Even if they are bullish, there is always some indicator or some level that will qualify their opinion.

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Trader's Remorse:Not all technical signals and patterns work. When you begin to study technical analysis, you will come across an array of patterns and indicators with rules to match. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify support and resistance for IBM, but a 70-day moving average may work better for Yahoo.

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OVERVIEW“Fundamental analysis is the study of economic, industry, and company conditions in an effort to determine the value of a company's stock. Fundamental analysis typically focuses on key statistics in a company's financial statements to determine if the stock price is correctly valued.”

The main principle of fundamental analysis is to find profitable companies to invest in by comparing revenues, sales, management, etc. Fundamentals include earnings report, dividends, sales, inventories, profit margins, P/E ratio, market share etc. Those looking to invest in a company will be the most likely to use fundamental analysis. This is because the research is used to not just look at the value of the company, but to look at the company itself. This includes the results of its finances and its potential to grow. The fundamentals can give a better picture the entire company, not just a snapshot. This means that analysis is used to look at the long term of a company not just the short term. The basic idea is if you put a rupee into the business (in the form of buying the stock) how much of a return can you expect. How much yield you will likely see and / or how much growth you will experience based on the operation, markets, competitors and costs of the business. Obviously, not all aspects of these fundamentals can be quantified. Fundamentals are associated with the economic health of a company, measured in terms of revenues, earnings, assets, liabilities, Return on Equity (ROE), Return on Assets (ROA), Return on Investments (ROI), growth prospects and cash flows, etc. The fundamentals tell you about a company. You can say a company is having robust fundamentals if it is growing at a nice pace, generating a profit, has limited debts and abundant cash. The analysis of a company's fundamentals involves getting deep into its financials, rather than day-to-day movement in its share price. Equity researchers normally do fundamental analysis in order to calculate the intrinsic value of a company's stock. If a company's stock is trading above the intrinsic value or fair value, then the stock is overvalued. If a company's stock is trading below the intrinsic value, then the stock is undervalued. However, if you watch the stock markets very closely, the share price of most companies never matches the fair value. Often, day traders and investors who would prefer short term investment options invest in those stocks, regardless of the companies' long term growth prospects. However, long term investors generally prefer to invest in companies with robust fundamentals and ignore near-term share price movements.

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OBJECTIVES Analysis of fundamental to acquire depth knowledge of the Steel Sector which I am

studying. To find out how the judgment is taken by the analyst on the basis of fundamental analysis

of the company. To establish link between expected share price with the projected company’s financial

performance (2008-2009) To study the demand of Steel sector particularly land-building, commercial purposes and

Real Estate. To make projection on its business performance and in the bad condition to improve the

performance of company. Investors may use fundamental analysis to determine future growth rates for buying high

priced growth stocks.

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PART IIRESEARCH WORK

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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. The research methodology using for find out the solution of the research problem is analytical research methodology and some extend descriptive research methodology.

Primary Data1) Primary data collect by discussing with my guide and other staff member of the Company2) Observation

Secondary Data The sources of secondary data for solve the problems are:-

1) Company Annual Report2) Company Internal Data3) Internet-Websites

RESEARCH LIMITATION1. Complete information cannot be analyzed because of time constraint.2. Data collected is industry/company specific.3. Results can be biased

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APPROACHES OF FUNDAMENTAL ANALYSISI. Top-down approach:

The top-down investor starts his analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He narrows his search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then does he narrow his search to the best business in that area.

Figure1. Showing Top-Bottom Approach II. Bottom-up approach:

The bottom-up investor starts with specific businesses, regardless of their industry/region.

Strengths of Fundamental Analysis Long-term Trends:

Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies.

Value Spotting:Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think long-term and value. Graham and Dodd, Warren Buffett and

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Compan

y Analysis

EconomyAnalysis

Industr

y Analysis

John Neff are seen as the champions of value investing. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power.

Business Acumen:One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumerStaples), cyclical (transportation) or income-oriented (high yield).

Knowing Who's Who:Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This happened to many of the pure Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.

Weaknesses of Fundamental Analysis Time Constraints:

Fundamental analysis may offer excellent insights, but it can be extraordinarily time consuming.Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.

Industry/Company Specific:Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed. A subscription-based model may work great for an Internet Service Provider (ISP), but is not likely to be the best model to value an oil company.

Subjectivity:

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Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a best-case valuation and a worst-case valuation. However, even on a worst-case valuation, most models are almost always bullish, the only question is how much so. The chart below shows how stubbornly bullish many fundamental analysts can be.

Time Constraints:Fundamental analysis may offer excellent insights, but it can be extraordinarily time consuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong.

Fundamental vs. Technical AnalysisTechnical analysis and fundamental analysis are the two main schools of thought in the financial markets.As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Let's get into the details of how these two approaches differ, the criticisms against technical analysis and how technical and fundamental analysis can be used together to analyze securities.

The Differences Charts vs. Financial Statements:

At the most basic level, a technical analyst approaches a security from the charts, while a fundamental analyst starts with the financial statements.

Time Horizon:Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years.

Trading Versus Investing:Not only is technical analysis more short term in nature that fundamental analysis, but the goals of a purchase (or sale) of a stock are usually different for each approach. In general, technical analysis is used for a trade, whereas fundamental analysis is used to make an investment.

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Investors buy assets they believe can increase in value, while traders buy assets they believe they can sell to somebody else at a greater price. The line between a trade and an investment can be blurry, but it does characterize a difference between the two schools.

Steps to fundamental AnalysisThe most common way that fundamental analysis is done is in three steps:1. Economic Analysis:The first step to this type of analysis includes looking at the macroeconomic situation. This includes GDP, growth rates, inflation, interest rates, exchange rates, productivity and energy prices.

2. Industry Analysis:The next step taken in analysis in this category is looking at the industry as a whole. This includes total sales, price levels, competition and their effects, foreign competition as well as any entrances or exits from the industry.

3. Company Analysis:Last in this process of studying the fundamentals includes looking at the company individually. This includes looking at unit sales, prices, new products, earnings and any chance of debt or equity occurring.

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ECONOMIC ANALYSIS

The purpose of analyze economic condition of the country in fundamental analysis to asses the general economic situation both within the country and inter nationally. The economy is like the tide and the various industry groups and individual companies are like boats. When economy expands most industry groups and companies benefits and grows. When the economy decline, most sectors and companies usually suffer. The stock market does not operate in a vacuum it is an integral part of ht whole economy of a country, more so in a free economy that of United States and to some extent in mixed economy like ours. To gain an insight into the complexities of stock market. One needs to develop a sound economic understanding and be able to interpret the impact of important economic indicators on stock markets.

The following are some important factors which should be taken into account while doing fundamental analysis: Economic Growth Per capita income Industrial Production Inflation Interest Rates Foreign Exchange Reserves Budgetary Deficit Domestic Savings and Investment Tax Rates Infrastructure Political Situation

Introduction of Indian EconomyThe economic history of India since Indus Valley Civilization to 1700 AD can be categorized under this phase. During Indus Valley Civilization Indian economy was very well developed. It had very good trade relations with other parts of world, which is evident from the coins of various civilizations found at the site of Indus valley

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Before the advent of East India Company, each village in India was a self sufficient entity. Each village was economically independent as all the economic needs were fulfilled with in the village. Then came the phase of Colonization. The arrival of East India Company in India ruined the Indian economy. There was a two-way depletion of resources. British used to buy raw materials from India at cheaper rates and finished goods were sold at higher than normal price in Indian markets. During this phase India's share of world income declined from 22.3% in 1700 AD to 3.8% in 1952. After India got independence from this colonial rule in 1947, the process of rebuilding the economy started. For this various policies and schemes were formulated. First five year plan for the development of Indian economy came into implementation in 1952. These Five Year Plans, stared by Indian government, focused on the needs of Indian economy. If on one hand agriculture received the immediate attention on the other side industrial sector was developed at a fast pace to provide employment opportunities to the growing population. And to keep pace with the developments in the world. Since then Indian economy has come a long way. The Gross Domestic Product (GDP) at factor cost, which was 2.3 % in 1951-52, reached 9.4% in financial year 2006-07. In 2009 it has come down to 7.8% because of Recession in advance countries like US, European Union and Japan.

Present scenario

1. GDP: At present Indian GDP rate is 8.3% (March 2010), which is the second highest in the world. According to some experts, the share of the US in world GDP is expected to fall (from 21 per cent to 18 per cent) and that of India GDP to rise (from 6 per cent to 11 per cent in 2025), and hence the latter will emerge as the third pole in the global economy after the US and China. India's greater integration with the world economy was reflected by the trade openness indicator, the trade to GDP ratio, which increased from 22.5 per cent of GDP in 2000-01 to 34.8 per cent of GDP in 2008-09. The exports and imports grew by 22.6 per cent and 24.5 per cent respectively in 2008-09, recording the lowest gap between growth rates after 2002-03. In the first nine months of the current year, exports reached US$111 billion, nearly 70 per cent of the year's export target. Imports grew by 25.9 per cent during April-December 2007 due to non-POL imports growth of 31.9 per cent, implying strong industrial demand by the manufacturing sector and for export activity.India's greater integration with the world economy was reflected by the trade openness indicator, the trade to GDP ratio, which increased from 22.5 per cent of GDP in 2000-01 to 34.8 per cent of GDP in 2006-07. The exports and imports grew by 22.6 per cent and 24.5 per cent respectively in 2008-09, recording the lowest gap between growth rates after 2002-03. In the first nine months of the current year, exports reached US$111 billion, nearly 70 per cent of the year's export target. Imports grew by 25.9 per cent during April-December 2007 due to non-POL imports growth of 31.9 per cent, implying strong industrial demand by the manufacturing sector and for export activity.

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2005-2006 2006-2007 2007-2008 2008-2009 2009-201002468

10 9.1 9.3 9.4

6.1

8.6

GDP Growth Rate

Figure2. Showing GDP growth rate

2. Per capita income:India today is the fourth largest country in terms of per capita income.The 9.4 per cent GDP growth during 2006-07, fastest since 1988-89 and second-fastest since the country achieved independence, has translated into a per capita income of Rs 29,382 a year or Rs 2,448.5 a month. Per capita income at current prices rose by 14.3 per cent in 2006-07 against Rs 25,716 in the previous fiscal, according to figures released by Central Statistical Organization. Notwithstanding the rise in per capita income, it still stands much below the international standards. A person with an annual income of Rs 29,382 ranks 50,411,696th in the world. On the other hand, India also houses the most number of billionaires in Asia-36, ahead of economic powerhouse Japan, according to Forbes magazine. These billionaires together control a wealth of Rs 8, 60,000 crore. Today stands at fourth position in terms of highest per capita income.

3. Inflation:India’s 2009-10 Economic Survey Report suggests a high double-digit increase in food inflation, with signs of inflation spreading to various other sectors as well. The Deputy Governor of the Reserve Bank of India, however, expressed his optimism in March 2010 about an imminent easing of Indian wholesale price index-based inflation, on the back of falling oil and food prices.For 2009, Indian inflation stood at 11.49% Y-o-Y. This rate reflects the general increase in prices, taking into account the purchasing power of the common man. According to the economics Survey Report for 2009-10, economic growth decelerated to 6.7% in 2008-09, from 9% in 2007-08 because of recession. The economy is expected to grow by 8.7% in 2010-11, with a return to a growth rate of 9% in 2011-12.In times of rising inflation, this also means that the cost of living increases are much higher for the populace. Cooking gas prices, for example, have increased by around 20% in 2008. With most of India’s vast population living close to or below the poverty line, inflation acts as a ‘Poor Man’s Tax’. This effect is amplified when food prices rise, since food represents more than half of the expenditure of this group.

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2005 2006 2007 2008 200902468

101214

7.8

4.25.3

7.48

11.49

Inflation Rate

Inflation Rate

Figure3. Showing inflation rate

Foreign Exchange Ratio:Foreign exchange reserves (also called Forex reserves or FX reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and used to back its liabilities, e.g. the local currency issued, and the various bank reserves deposited with the central bank, by the government or financial institutions. In 2009 India has the foreign reserves of $ 284.183 bn which the fifth highest in the world after China, Japan, Euro zone, Russia and Taiwan.

Tax rate:Corporate tax rate is 30 percent. The corporate tax rate in India is at par with the tax rates of the other nations worldwide. The corporate tax rate in India depends on the origin of the company.

If the company is domicile to India, the tax rate is flat at 30%. But for a foreign company, the tax rate depends on a number of factors and considerations. The companies that are domicile to India are taxed on the global income whereas the foreign companies in India are taxed on their income within the Indian Territory. The incomes that are taxable in case of foreign companies are interest gained, royalties, income from the capital assets in India, income from sale of equity shares of the company, dividends earned, etc.

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INDUSTRY ANALYSIS

AN OVERVIEW OF STEEL SECTORGlobal ScenarioThe steel industry in India has been moving from strength to strength and according to the Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth largest producer of steel in the world and is likely to become the second largest producer of crude steel by 2015-16.Recently The Union Minister for Steel, Shri Virbhadra Singh said that India is expected to become the 2nd largest steel producing nation by 2012 with a targeted production capacity of 120

million tones. Indian Steel Industry contributes to nearly two percent of Gross Domestic Production and employs over 5 lakh people. It contributes 2% to GDP. in 2009-10, the Steel Sector was able to make a recovery after the sluggish growth on account of global downturn and adverse market condition of 2008-09. Steel production rose 4.2% to reach 60 MT in 2009-2010, according to the steel the resurgence in automotive appliances, capital goods and construction sectors have directly contributed to this positive performance. During the year, the industry achieved a total capacity utilization of 88.9% showing increase in production of crude steel (by 10.7%) and finished steel (by 4.4%) as well as consumption (by 7.9%). The year 2010-11 has begun on a note of optimism for the steel sector and especially for the major PSUs under the Ministry’s administrative control like SAIL, RINL and NMDC Ltd.In 2009 World Crude Steel output at 1529.4 million metric tons was 5.9% more than the previous year. (Source: IISI) “China remained the world's largest Crude Steel producer in 2009 also (369.4 million metric tons) followed by Japan (112.47 million metric tons) and USA (93.89 million metric tons). India occupied the 5th position (55.08 million metric tons). (Source: IISI) The International Iron & Steel Institute (IISI) in its forecast for 2010 has confirmed the trend of recent years of an increase in steel use in-line with general economic growth and with the fastest growth occurring in the countries with the highest GDP growth such as India and China. Apparent world-wide Steel Demand is forecast to grow to between 1,640 and 1,853 million tonnes in 2006 from a total of 972 million tonnes in 2004. This is a growth of 4-5% over the two year period.

However, according to IISI the cost of raw materials and energy would continue to represent a major challenge for the world steel industry. Below is the Ranking:-

21

Table1. India’s Stand in World Steel market

Market ScenarioAfter liberalization, there have been no shortages of iron and steel materials in the country. Apparent consumption of finished (carbon) steel increased from 14.84 Million Tonnes in 1991-92 to 43.471 million tonnes (Provisional) in 2006-07. Indian ‘s steel consumption rose 8% in the year ended march 2010 over the same period a year ago on account of improved demand from sectors like automobile, infrastructure and housing. The country’s steel consumption increased to 56.3 MT in the previous year.During April-June, 2007, apparent consumption of finished (carbon) steel was 10.103 million tonnes (Provisionally estimated) · Steel industry that was facing a recession for some time has staged a turnaround since the beginning of 2002. · Efforts are being made to boost demand. · China has been an important export destination for Indian steel. · The steel industry is buoyant due to strong growth in demand particularly by the demand for steel in China.

SAIL34%

TISCO11%RINL

8%

ESSAR, ISPAT& JSW17%

OHTERS30%

Market Share

Figure4. Showing market share of Indian steel companies

22

Country Rank Production(in MT)China 1 500.5Japan 2 118.7United States 3 91.4Russia 4 68.5India 5 64.2South kores 6 53.6Germany 7 45.8Ukraine 8 37.1Brazil 9 33.7Italy 10 30.6

The boom in the steel sector is being driven by growth in its user industries asConstruction and automobiles.Giving a huge fillip to the infrastructure sector, the Indian government has announced plans to spend at least US$17 billion to upgrade roads, airports and ports by 2010. The heightened activity in sectors such as roads, ports and sea-bridges is attracting international attention. It has drawn at least two dozen foreign giants in civil engineering, construction and infrastructure consultancy services to the country. During the last six months, around 20 civil engineering and construction companies have entered India or have stepped up their activity, while some big names in the infrastructure consultancy sector are ramping up their operations here. These trends are expected to send annual consumption rocketing from current levels of about 36 million tonnes per year. Steel producers also hope the steel industry will become another sunshine industry, fuelled by a rapid rise in the demand for washing machines, fridges, TV sets and other consumer items using steel as a major ingredient. Similarly, the automobile sector has been abuzz with activity. The total number of passenger vehicles manufactured during 2004-05 was 1,209,654 units, an increase of 22 per cent over the previous year.

ProductionSteel industry was delicensed and decontrolled in 1991 & 1992 respectively. Today, India is the 7th largest crude steel producer of steel in the world. In 2008-09(Apri-June''08), production of Finished (Carbon) Steel was 12.088 million tonnes. Production of Pig Iron in 2008-09(April-June'08) was 1.165 Million Tonnes. The share of Main Producers (i.e. SAIL, RINL and TSL) and secondary producers in the total production of Finished (Carbon) steel was 33% and 67% respectively during the period 2008-09 (April-June, 2007).

Table2. India’s Steel industry Growth Year Crude steel production (in million tonnes)

Quantity Growth rate over last year (%)2005-2006 46.46 6.962006-2007 50.81 9.382007-2008 53.86 5.982008-2009 58.44 8.50

SWOT Analysis:In order to understand the potential of any market and to introduce or to sustain any product, we do SWOT analysis to identify the strengths, weaknesses, opportunity and threats. Here is the SWOT analysis of Indian Steel industry.

23

Swot AnalysisStrengths Weaknesses

Opportunity Threats

Huge Iron ore and CoalLow labour wage rateAbundance of quality manpower.

Unexplored rural market.Domestic demand Exports

High cost of debt.Low R &D investmentInadequate infrastructureLow productivity

China becoming exporter.Protectionism in the westDumping by competitors.

Figure4. SWOT analysis

24

COMPANY ANALYSIS

The purpose of company analysis to analyze the financial and non-financial aspects of a company to determine whether to buy, sells, or holds onto the shares of a particular company After determining the economic and industry conditions, the company itself is analyzed to determine its financial health. This is usually done by studying the company's financial statements. From these statements a number of useful ratios can be calculated. The ratios fall under five main categories: profitability, price, liquidity, leverage, and efficiency. When performing ratio analysis on a company, the ratios should be compared to other companies within the same or similar industry to get a feel for what is considered "normal." These are quantitative factors of company analysis; there are also some qualitative factors which should be considered also.

Find out as much as possible about the company and their products. Do they have any “core competency” or “fundamental strength” that puts them ahead of

all the other competing firms? What advantage do they have over their competing firms? Do they have a strong market presence and market share? Or do they constantly have to

employ a large part of their profits and resources in marketing and finding new customers and fighting for market share?

Following are some more important aspects about company Shareholding pattern Growth Technology Expansion Plan Profitability Capital History Marketing Capabilities Most important its financial statement

So fundamental analysts use different tools and ratios to compare all sorts of companies no matter what business they are in or what they do.

Steel Authority Of India Ltd.

25

SAIL's Background and HistoryThe PrecursorSAIL traces its origin to the formative years of an emerging nation - India. After independence the builders of modern India worked with a vision - to lay the infrastructure for rapid industrialization of the country. The steel sector was to propel the economic growth. Hindustan Steel Private Limited was set up on January 19, 1954. The President of India held the shares of the company on behalf of the people of India.

Expanding Horizon (1959-1973)Hindustan Steel (HSL) was initially designed to manage only one plant that was coming up at Rourkela. For Bhilai and Durgapur Steel Plants, the preliminary work was done by the Iron and Steel Ministry. From April 1957, the supervision and control of these two steel plants were also transferred to Hindustan Steel. The registered office was originally in New Delhi. It moved to Calcutta in July 1956, and ultimately to Ranchi in December 1959.A new steel company, Bokaro Steel Limited, was incorporated in January 1964 to construct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela Steel Plants were completed by the end of December 1961. The 1 MT phase of Durgapur Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel production of HSL went up from .158 MT (1959-60) to 1.6 MT.The second phase of Bhilai Steel Plant was completed in September 1967 after commissioning of the Wire Rod Mill. The last unit of the 1.8 MT phase of Rourkela – the Tandem Mill - was commissioned in February 1968, and the 1.6 MT stage of Durgapur Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS.Thus, with the completion of the 2.5 MT stage at Bhilai, 1.8 MT at Rourkela and 1.6 MT at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to 4MT in 1972-73.

Table4. SAIL’s production from its plantPlant Production for 2008-2009 Manpower as on 1.4.2009

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Bhilai Steel Plant 5109 32563Durgapur Steel Plant 1966 13581Rourkela Steel Plant 2128 19455Bokaro Steel Plant 3596 24165IISCO Steel Plant 400 11608Alloy Steels Plant 205 1769Visveswaraya Iron & Steel Plant 103 1649

Holding CompanyThe Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing industry. The policy statement was presented to the Parliament on December 2, 1972. On this basis the concept of creating a holding company to manage inputs and outputs under one umbrella was mooted. This led to the formation of Steel Authority of India Ltd. The company, incorporated on January 24, 1973 with an authorized capital of Rs. 2000 crore, was made responsible for managing five integrated steel plants at Bhilai, Bokaro, Durgapur, Rourkela and Burnpur, the Alloy Steel Plant and the Salem Steel Plant. In 1978 SAIL was restructured as an operating company.Since its inception, SAIL has been instrumental in laying a sound infrastructure for the industrial development of the country. Besides, it has immensely contributed to the development of technical and managerial expertise. It has triggered the secondary and tertiary waves of economic growth by continuously providing the inputs for theConsuming industry.

Company ProfileSteel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets.Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural’s, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. SAIL's wide range of long and flat steel products is much in demand in the domestic as well as the international market. This vital responsibility is carried out by SAIL's own Central Marketing Organization (CMO) and the International Trade Division. CMO

27

encompasses a wide network of 34 branch offices and 54 stockyards located in major cities and towns throughout India.With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients world-wide.SAIL has a well-equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi which helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organization at Ranchi. Our captive mines are under the control of the Raw Materials Division in Kolkata. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Kolkata. Almost all our plants and major units are ISO Certified.

Production Facilities 5 Integrated Steel Plants 3 Special Steel Plants 1 Subsidiary - Ferro Alloy Plant (under merger)

Marketing Network: 34 Branch Sales office 14 Customer Contact Office (CCO) 42 Warehouses (Departmental 24 & Consignment Agencies 18

Captive Mines: 9 Iron Ore Mines 5 limestone mines 2 Dolomite Mines 3 Collieries

Major Units Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

Joint Ventures

28

SAIL has promoted joint ventures in different areas ranging from power plants to ecommerce.

NTPC SAIL Power Company Pvt. LtdA 50:50 joint venture between Steel Authority of India Ltd. (SAIL) and National Thermal Power Corporation Ltd. (NTPC Ltd.), it manages the captive power plants at Rourkela, Durgapur and Bhilai with a combined capacity of 314 megawatts (MW)

Bokaro Power Supply Company Pvt. LimitedThis 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant.

Mjunction Service LimitedA joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes ecommerceactivities in steel and related areas.

SAIL-Bansal Service Center Ltd.SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service centre at Bokaro with the objective of adding value to steel.

Bhilai JP Cement LtdSAIL has also incorporated a joint venture company with M/s Jaiprakash Associates Ltd to set up a 2.2 MT cement plant at Bhilai SAIL has signed an MOU with Manganese Ore India Ltd (MOIL) to set up a joint venture company to produce Ferro-manganese and silico-manganese at Bhilai.

Ownership and ManagementThe Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its ‘Navratna’ status, enjoys significant operational and financial autonomy.

SAIL TodaySAIL today is one of the largest industrial entities in India. Its strength has been the diversified range of quality steel products catering to the domestic, as well as the export markets and a large pool of technical and professional expertise. Today, the accent in SAIL is to continously adapt to the competitive business environment and excel as a business organization, both within and outside India. In December 2010 SAIL is going for FPO to expand the business.

Growth of SAILMaintaining thrust on production to meet the growing demand for steel in the domestic market, Steel Authority of India (SAIL) achieved best-ever February performance by producing 1.1

29

million tons of saleable steel, a growth of 7% over February `07, with capacity utilization of the SAIL plants going up to 122%. The companies also recorded best-ever February production of hot metal at 1.24 million tons and 1.14 million tons of crude steel, both showing 6% growth over the corresponding period last year (CPLY).

Share Holding PatternSAIL is a public sector undertaking of the Government of India which holds 85.82% of equity. Other major shareholders are Domestic Financial institutions with 4.73% stake and Foreign Institutional Investor with 5.08 % individuals with 3.16% stake and others 1.21%.

Figure5. Shareholding pattern

Government of India86%

domestic financial institu-tions5%

foreign Institutional Investor

5%

Individuals(Incl. Employees, NRIs3%

others1%

% of shareholding

Figure6. SAIL contribution to government revenues

30

Recent Development:SAIL is going for Follow on public Issue (FPO) to dilute 10% stake through 5% selling government’s stake and issuing fresh equity. This disinvestment will fetch government about Rs.16000 crore.

Table5. Balance Sheet (Rs. In crores)

31

Sales Tax22%

Royalty & Cess2%

Dividend & Dividend Tax to government

19%

Corportate Tax44%

Custom Duty5%

Excise Duty5%

Other Taxes3%

Contribution to Government

Particulars March 09 March 08 March 07 March 06 March 05Share Capital 4130.40 4130.40 4130.40 4130.40 4130.40Reserves & Surplus 13182.75 8471.01 6176.25 907.27 (16.05.16)Total Shareholders’ Funds 17313.15 12601.41 10306.65 5037.67 2525.24Secured Loans 1556.39 1122.16 1603.98 3400.78 5511.59Unsecured Loans 2624.13 3175.46 4165.81 5289.28 7416.35Total Debt 21493.71 16899.03 16076.44 8690.06 12927.94Total Liabilities 21493.67 16899.03 16076.44 13727.73 15453.18Gross Block 29912.71 29360.46 28043.48 27683.63 27534.61Less: Accum. Depreciation 18315.00 17198.32 15558.41 14515.73 13498.75Net Block 11597.71 12162.14 12485.07 13167.90 14035.86Capital Work in Progress 1236.04 757.94 366.48 382.20 361.25Investments 513.79 292.00 606.71 543.17 543.17Inventories 6814.10 6371.66 4220.69 3057.06 3744.37Sundry Debtors 23214.75 1881.73 1908.45 1549.96 1660.09Cash and Bank Balance 9609.83 6172.64 6132.12 2035.82 512.91Loans and Advances 3097.70 2771.47 3260.11 1603.36 1373.33Current Liabilities 8105.99 8081.23 7812.72 4412.32 4492.71Provisions 5713.41 5645.14 5385.40 4577.92 2821.40Net Current Assets 8016.98 3471.13 2323.25 (744.04) (23.41)Miscellaneous Exp not w/o 129.15 215.82 294.93 378.50 536.31Total Assets 21493.67 16899.03 16076.44 13727.73 15453.18Contingent Liabilites 3635.18 3730.45 4056.90 3159.22 2853.25

Particular March 09 March 08 March 07 March 06 March 05Sales Turnover 39481.80 32686.89 32023.87 24137.02 19262.02Other Income 1708.15 1151.99 1072.69 976.05 795.89Stock Adjustments 289.15 1131.31 367.72 (485.84) (433.00)

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Tota Income 41479.10 34970.19 33464.28 24627.23 19624.91Raw Materials 13276.20 12391.12 9358.92 6904.25 6234.03Excise Duty 5393.82 4605.48 3455.12 2881.66 2370.56Power & Fuel Cost 2613.94 2526.97 2227.62 2187.95 2061.32Other Manufacturing Exp 3662.77 3268.56 2607.77 2164.42 1965.95Employee Cost 5086.81 4156.28 3811.91 4757.90 3722.87Selling & Admt. Exp 1417.61 1467.62 1167.04 1176.07 1176.43Miscellaneous Expenses 484.80 525.41 613.33 741.80 737.38Less: Preoperative Exp Capitalized

1423.08 1352.05 921.71 893.07 856.21

PBIDT 10966.23 7380.80 11144.28 4706.25 2212.58Interest & Financial Charges 332.13 467.76 651.98 955.45 1381.79PBDT 10634.10 6913.04 10492.30 3750.80 830.79Depreciation 1211.48 1207.30 1126.95 1122.59 1146.66Profit Before Tax 9422.62 5705.74 9365.35 2628.21 (315.87)Tax 3220.33 1692.77 2548.38 116.13 (11.56)Profit After Tax 6202.29 4012.97 6816.97 2512.08 (304.31)

Table6. Profit and Loss Account (Rs, In Crore)

Table7. Growth of the CompanyParticulars March 09 March 08 March 07 March 06 March 05Sales 39481.80 32686.89 32023.87 24137.02 19262.02Var % 20.78% 2.07% 32.67% 25.30% -Profit After Tax 6202.29 4012.97 6816.97 2512.08 (304.31)Var % 54.55% -41.13% 171.37% 925.50% -

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

19,262.0224,137.02

32,023.87 32,686.89

39,481.80

sales

33

Figure7. Profit generated over the period of five years

2004-2005 2005-2006 2006-2007 2007-2008 2008-2009-300.31

2512.08

6816.97

4012.97

6202.29

Profit

Table8. Share Price movement in 2009 (in Rs)

Current Price 190.40

52 week High 292.50

52 Week Low 106.10

Face Value 10

Table9. Important RatiosParticulars March 09 March 08 March 07EPS(Rs) 14.54 9.44 16.06Book Value(Rs) 41.92 30.51 24.95NPM (%) 15.71 12.28 21.29ROCE (%) 51.28 38.03 68.77ROE (%) 41.47 35.04 88.85Debt/Equity 0.28 0.44 0.94P/E Ratio 7.85 8.82 3.92

34

Here from the above information I found that the Sales, EPS, Book Value, Net Profit Margin are increased continuously in 2009 as compared to 2008 and 2007 but SAIL should concentrate on PE Ratio because it has increased in 2009. The Debt/Equity ratio is decreased which is good sign and under controlled which is good sign. The investor of this company should take hold position of this company for the long period for good dividends and good market price in future.

Tata Steel Ltd.

BackgroundTata Steel (earlier known as Tata Iron & Steel Company or Tisco) was established in 1907. It represents the country's single largest, integrated steel plant in the private sector. The company has a wide product portfolio, which includes flat and long steel, tubes, bearings, Ferro-alloys and minerals as well as cargo handling services. While in terms of size, Tata Steel ranks 34th in the world; it was ranked first (for the second time) among 23 world class steel companies by World Steel Dynamics in June 2005. With its plant located in Jamshedpur (Jharkhand) and captive iron ore mines and collieries in the vicinity, Tata Steel enjoys a distinct competitive advantage. The main plant at Jamshedpur manufactures 5 MTPA of flat and long products, while its recently acquired Singapore based company, NatSteel Asia, manufactures 2 MTPA of steel across Singapore, China, Philippines, Malaysia and Vietnam. Apart from the main steel division, Tata Steel's operations are grouped under strategic profit centres like tubes, growth shop, bearings, Ferro alloys and minerals, rings, agrico and wires. Today Tata is present in more than 11 countries from five continents. It produces around eight kinds of product like wires, tubes raw materials etc. Tata has taken several initiatives for the development of its employees like equal opportunity for all. Table10. Basic information about Tata Steel Ltd.Incorporation Year 1907Registered Office Bombay House, 24 Homi Mody Street Fort, Mumbai-400001,

MaharashtraTelephone 91-22-66658282Fax 91-22-66658113/66657725

35

Industry Steel – LargeHouse TataChairman Ratan N TataManaging Director B MuthuramanCompany Secretary Mr. A. Anjeneyan Auditor Deloitte Haskins & SellsFace Value 10Market Lot 1Listing Kolkata, Luxumberg, Mumbai, NSERegistrar TSR Darashaw Ltd.

6-10 Haji Moosa, Patrawala Ind Estate, Dr EMoses Road Mahalaxmi, Mumbai- 4000011

Business ResultsThe company achieved the best ever sales turnover and profitability during the year under review. A robust Indian economy, firm steel prices, higher volumes and several improvement initiatives contributed to the record performance. Finished steel sales were higher by 11.33% at 4.51million tones over the previous year. Export turnover was lower by about 5% due to lower volumes. Average price realization improved mainly due to higher prices of hot rolled coils/sheets. Operating profit was higher by over `1,000 crore at `6.973 crores (2008-2009) an increase of 17% over the previous year Net interest charges were higher at `174 crores.(2008-2009) .

Figure8.Share holding pattern

36

Bodies corporate; 0.3121

Trust ; 0.5Public Sharehold-ing(Institutions);

0.420300000000004

Public Sharehold-ing(Non Institu-tions); 0.2626

Table11. Balance Sheet ( Rs. in crores) Particulars March 09 March 08 March 07 March 06 March 05Share capital 580.67 553.67 553.67 369.18 369.18Reserves & Surplus 13368.42 9201.63 6506.25 4146.68 2816.84Total Shareholders Funds 13949.09 9755.30 7059.92 4515.86 3186.84Secured Loans 3758.92 2191.74 2468.18 3010.16 3667.63Unsecured loans 5886.41 324.41 271.52 372.05 557.98Total Debt 9645.33 2516.15 2739.70 3382.21 4225.61Total Liabilities 23594.42 12271.45 9799.62 7898.07 7411.63Gross Block 16029.49 15407.17 13179.26 12505.83 12192.71Less: Depreciation 7486.37 6699.85 5939.68 5411.62 4849.99Net Block 8543.12 8707.32 7239.58 7094.21 7342.72Capital Work in Progress 2497.44 1157.73 1872.66 763.64 201.08Investments 6106.18 4069.96 2432.65 2194.12 1194.55Inventories 2332.98 2174.75 1872.40 1249.08 1152.95Sundry Debtors 631.68 539.40 581.82 651.30 958.47Cash and Bank Balance 7681.35 288.39 246.72 250.74 373.12Loans and Advances 4025.95 2006.21 2160.63 1508.00 2000.08Current Liabilties 5389.22 4564.14 4297.24 3900.00 3594.23Provisions 3037.54 2361.44 2524.42 2068.99 2217.11Net Current Assets 6245.15 (1916.83) (1960.09) (2309) (1326.72)Miscellaneous Expenses 202.53 253.27 214.82 155.97 0.00Total Assets 23594.42 12271.45 9799.62 7898.07 7411.63Contigent Liabilities 5072.96 2209.45 1911.12 1508.01 1316.22

Table12. Profit and Loss Account (` in crores)Particulars March 09 March 08 March 07 March 06 March 05

37

Sales Turnover 19757.80 17140.24 15871.08 11920.96 9793.27Other Income 573.08 356.24 305.19 293.38 134.18Stock Adjustments 82.47 104.91 289.55 80.31 15.03Total Income 20413.35 17601.39 16465.82 12294.65 9942.48Raw Materials 3572.06 3024.38 3020.42 2245.42 1749.97Excise Duty 2304.18 2004.83 1377.92 1218.57 1071.95Power & Fuel Cost 1027.84 897.57 778.30 724.62 787.75Other Manufacturing Exp 2500.00 2090.67 1948.00 1549.92 1317.36Employee Cost 1598.96 1397.39 1403.84 1575.71 1444.96Selling Administration Exp 1491.57 1373.71 1304.05 1055.47 972.29Miscellaneous Expenses 822.57 735.89 693.25 558.59 498.60Less: Preoperative Exp 236.02 112.62 204.82 151.84 60.79PBIDT 7332.19 6189.57 6144.86 3518.19 2160.39Interest& Financial Charges 251.25 174.51 228.80 227.12 342.41PBDT 7080.94 6015.06 5916.06 3291.07 1818.98Depreciation 819.29 775.10 618.78 625.11 555.48Profit Before Tax 6261.65 5239.96 5297.28 2665.96 1262.50Tax 2039.50 1733.58 1823.12 919.74 250.19Profit After Tax 4222.15 3506.38 3474.16 1746.22 1012.31

How fast is the company growing?Companies are judged by their sales and earnings growth rates than on the absolute value of their sales and earnings. Look for companies that consistently grow then there peers.Table13. Growth factorYear 2009 2008 2007 2006 2005Sales 19,757.80 17,140.24 15,871.08 11,920.96 9,793.27

Var % 15.27% 8.00% 33.14% 21.72% -

Profit After Tax 4,222.15 0.93% 98.95% 72.50% -

Var % 20.41% 0.93% 98.95% 72.50% -

Figure9. Profit growth rate

38

2005 2006 2007 2008 20090

500

1000

1500

2000

2500

3000

3500

4000

4500

1012.31

1746.22

3474.16 3506.38

4222.15

Figure10. Sales Growth

2005 2006 2007 2008 20090.00

5,000.0010,000.0015,000.0020,000.0025,000.0030,000.0035,000.0040,000.00

Sales

Sales

Years

Sale

s

Table14. Share Price movement in 2009 (in Rs)Current Price 698.00

52 week High 969.80

52 Week Low 399.21

Face Value 10

Figure11. Shareholding Pattern

39

Foreign Holdings18%

Govt./ Financial Insti-tutions

22%Corporate Bodies

4%Directors and their

Relatives31%

Other including Indian public26%

Share Holding

Table15. Important RatiosParticulars March 2009 March 2008 March 2007

EPS (Rs) 69.95 61.51 60.91Book Value(Rs) 240.22 176.19 127.51

NPM(%) 21.37 20.46 21.89ROCE(%) 36.79 50.13 63.79ROE(%) 35.62 41.70 60.02Debt/Equity 0.51 0.31 0.53P/E 6.43 8.72 6.58

Here from the above Information I found that the Sales, EPS, Book Value, Net Profit Ratio are increased continously in 2009 as compared to 2008 and 2007 but Tata should concentrate on PE Ratio because it has decreased in 2009. The debt-equity ratio is decreased which is good sign and under controlled which is good sign. The inventor of this company should buy and hold shares of this company for long period because this company can give good dividend and investor can get arbitrage profit for short period of time. These shares are for long term investment purpose.

Jindal steel Ltd.

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A company of Jindal group

Jindal Stainless Ltd.:Jindal Stainless is the largest integrated stainless steel producer in India and the flagship company of the Jindal Group. It is an ISO: 9001 & ISO: 14001 company. Jindal Stainless ltd. has plants at Hisar and Vizag and is setting up a Greenfield integrated Stainless Steel project in Orissa with capacity of 1.6 million tons per annum. Jindal plant at Hisar is India's only composite stainless steel plant for the manufacture of Stainless Steel Slabs, Blooms, Hot rolled and Cold Rolled Coils, 60% of which are exported worldwide. At Vizag, Jindal has a Ferro Alloy Plant with an installed capacity of 40,000 metric tons per annum.

Jindal Steel & Power Ltd:JSPL is one of the leaders in Steel Manufacturing and Power Generation in India. JSPL is the largest private sector investor in the State of Chhattisgarh with a total investment commitment of more than Rs. 10,000 crore. It is also setting up a 6 million tonne steel plant in Orissa with an investment of Rs. 13,500 crore and a 6 million tonne steel plant in Jharkhand with an investment of Rs. 15,000 crore. Jindal Power Limited, wholly owned subsidiary of JSPL, is setting up a 1000 MW O P Jindal Super Thermal Power Plant at Raigarh, with an investment of over Rs. 4500 crore. JSPL has also ventured into exploration and mining of high value minerals and metals, like diamond, precious stones, gold, platinum group of minerals, base metals, tar sands etc.

JSW Steel Limited:JSW Steel Ltd is a fully integrated steel plant having units across Karnataka and Maharashtra producing from pellets to colour coated steel. JSW was founded in1982, when the Jindal Group acquired Piramal Steel Ltd which operated a mini steel mill at Tarapur in Maharashtra. The Jindal renamed it as Jindal Iron and Steel Co Ltd (JISCO) now known as JSW Steel Limited (Downstream). In 1994, to achieve the vision of moving up the value chain and building a strong, resilient company, JISCO promoted Jindal Vijayanagar Steel Ltd (JVSL) now known as JSW Steel Limited (Upstream).

Jindal SteelJindal Steel is amongst the largest corporate groups in India. Jindal Group is presently a US $5 billion conglomerate and ranks fourth amongst the top Indian Business Houses in terms of assets. Jindal Steel is one of the largest steel producers in India with 12 plants in India and 2 in USA.

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O.P. Jindal is the founder of Jindal Group. He started by trading in steel pipes in Nalwa, a village in the present-day Haryana. In 1952, O.P. Jindal set up the group's first factory at Liluah, near Calcutta for the manufacturing of steel pipes, bends and sockets. Soon thereafter, he set up a similar manufacturing unit at Hisar. In the early 1960s Jindal Steel achieved a breakthrough when it developed India's first 100% indigenous pipe mill at Hisar. In 1970, O.P. Jindal established Jindal Strips Limited and set up a mini steel plant at Hisar to manufacture coils and plates through the electric and furnace route. Since then, Jindal Steel has not looked back and has gone from strength to strength. Today, the group has developed into a multi-faceted organization with revenues in excess of US $5 billion.

BackgroundJindal Steel and Power Limited (JSPL), part of the O P Jindal group was formed in April, 1998 by hiving off the Raigarh and Raipur manufacturing facilities of Jindal Strips Limited (JSL) into a separate company. Currently the company is engaged in manufacture of sponge iron, steel, pig iron, ferrous-chrome and power. JSPL is largest, and amongst the lowest cost, coal based producer of sponge iron in India with an installed capacity of 1,370,000 MTPA. JSPL’s operations are headed by Mr. Naveen Jindal, Executive Vice Chairman and Managing Director of the company.

Operations of the companyJSPL is engaged in manufacturing of iron & steel products and power. JSPL’s product mix includes sponge iron, power and value added steel products, such as rounds, billets, beams, blooms and slabs. During FY’09, JSPL undertook capacity expansions across various divisions at Raigarh. Post expansions, the installed capacities of various products include 1,370,000 tpa of sponge iron, 24,00,000 tpa of mild steel, 36,000 tpa of ferrous Alloy, hot metal capacity of 250,000 tpa, power generation of 295 MW, coal washery with capacity of 60 lakh tpa and a Rail and Universal Beam Mill (RUBM) of 750,000 tpa capacity. The company has mining rights for coal in Gare area in Raigarh with estimated reserves of 62 mn tonnes and iron ore at Tensa mines Orissa (estimated reserves 20 mn tonnes). Sales of the company registered an 18% rise to Rs 2877 cr in FY’09 over previous year. Capacity augmentation coupled with improved realizations, on account of increase in sales of value added products, helped the company achieve the growth.Sponge iron had been the major contributor to the total sales (23%) followed by beams and columns (22%) and iron ore/fines (18%). Export sales registered 14% rise and stood at Rs 371 cr in FY’09, mainly made to UAE, China & Korea. JSPL’s coal requirement is met through company’s own mines. JSPL’s requirement of iron ore is partially sourced from captive iron ore mine in Tensa and balance through term contract from external source. Currently, company imports its entire requirement of coke from China and is setting up an in-house coke oven plant to reduce its costs. Captive power generation plant is based on the utilization of waste heat of the

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flue gases from the sponge iron kilns as well as steam from coal fired FBC boilers, which in turn utilizes the ejects from the coal washer and char generated from the sponge iron plants. The power generation capacity as on December 31, 2009 stood at 315 MW. Apart from captive use, JSPL sells power to Chhattisgarh State Electricity Board, through a firm PPA, and neighboring industrial units.

Table16. Major products traded (Rs. In Crores)

Product Name Sales Sponge Iron 794.54Other Semi Steel products 685.21Parallel Flange/Beam/Columns 624,19Rounds 574.72Iron Ore-Fines 443.25Power 285.69Pig Iron 218.69Ferro Chrome 123.44Others 58.48Other Finished Steel Products 57.08Machinery 33.95

Figure12. Share Holding Pattern

Foreign Holdings

25%Govt./Financial Institutions

5%Corporate Bodies

2%Directors and their Relatives

59%

Other including Indian Public10%

Share Holding Pattern

Table17. Balance Sheet

Particulars March 2009 March 2008 March 2007 March 2006 March 2005

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Share Capital 16.40 16.40 16.40 16.40 25.63Reserves & Surplus 2,462.01 1,823.26 1302.98 839.80 558.81Total Shareholders Funds 2478.41 1839.66 1319.38 856.20 583.81Secured Loans 2115.16 1780.77 1159.51 988.53 813.96Unsecured Loans 1392.11 964.60 336.35 37.43 71.29Total Debt 3507.72 2745.37 1495.86 1025.96 885.25Total Liabilities 5986.13 4585.03 2815.24 1882.16 1469.06Gross Block 4929.03 3243.05 2530.28 1677.94 1011.22Less: Accum. Depreciation 781.75 542.33 361.76 247.00 179.31Net Block 4147.28 2700.72 2168.52 1430.94 831.91Capital Work in Progress 937.84 1146.27 345.70 289.03 492.78Investments 709.82 430.30 33.38 49.66 42.23Inventories 642.44 568.65 257.55 196.51 101.95Sundry Debtors 320.31 299.54 172.91 211.16 165.12Cash and Bank Balance 52.97 31.30 33.29 21.90 18.64Loans and Advances 819.59 606.32 575.09 218.64 150.67Current Liabilities 1261.88 926.67 592.22 448.45 276.88Provisions 385.48 272.14 180.00 88.56 59.00Net Current Assets 187.95 307.00 266.62 111.20 100.50Miscellaneous Exp not w/0 3.24 0.74 1.02 1.33 1.64Total Assets 5986.13 4585.03 2815.24 1882.16 1469.06Contigent Liabilities 1578.03 679.59 597.68 273.85 130.85

Table18. Profit and Loss ( Rs. in crore)

Particulars Mar 2009 Mar 2008 Mar 2007 Mar 2006 Mar 2005Sales Turnover 3,899.81 2877.46 2448.17 1390.20 993.18Other Income 72.34 37.25 23.10 24.84 13.75Stock Adjustments 56.86 183.98 13.85 42.38 17.92Total Income 4029.01 3098.69 2485.12 1457.42 1024.85Raw Materials 783.38 450.35 341.67 233.37 164.47Excise Duty 396.71 312.91 196.26 131.08 112.58Power & Fuel Cost 341.27 428.89 429.07 233.00 159.55Other Manufacturing Exp 502.98 394.59 280.19 155.12 107.26Employee Cost 93.70 72.81 48.45 31.04 24.67Selling & Admt. Exp 378.36 323.99 212.76 99.84 75.67Miscellaneous Exp. 78.41 66.09 60.99 29.63 61.04Less: preoperative Exp. Capitlalised 0.00 0.00 0.00 0.00 0.00Profit before Interest, Dep. & Tax 1454.20 1049.06 915.73 544.34 319.61Interest & Financial Charges 173.19 102.24 85.63 83.01 82.95Profit before Depreciation & Tax 1281.01 946.82 830.10 461.33 236.66Depreciation 336.47 219.17 152.48 106.23 57.64

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Profit Before Tax 944.54 727.65 677.62 355.10 179.02Tax 241.55 154.71 161.91 49.64 33.94Profit After Tax 702.99 572.94 515.71 305.46 145.08

Table19. Share Price movement in 2009 (Rs. in crores)

Current Price 828.50

52 week High 1389.70

52 Week Low 470.10

Face Value 10

Table20. Growth factor of the Company

Year Mar 2009 Mar 2008 Mar 2007 March 2006 March 2005Sales 3,899.81 2,877.46 2,448.17 1,390.20 993.18Var% 35.52% 17.53% 76.10% 39.97% -Profit After Tax 702.99 572.94 515.71 305.46 145.08Var% 22.68% 11.10% 47.41% 110.55% -

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Figure13. sales performance over the period of five years(In crore)

2005 2006 2007 2008 20090

50010001500200025003000350040004500

993.101,390.20

2,448.172,877.46

3,899.81

Sales

Figure14. Profit movement for five years (In crore)

2005 2006 2007 2008 20090

100200300400500600700800

145.08

305.46

515.71572.94

702.99

Profit

Table21. Important Ratios:

Particulars March 2009 March 2008 March 2007EPS(in `) 225.36 183.92 165.38Book value(in ` ) 804.35 596.97 428.05Net Profit Margin 18.03 19.91 21.07P/E Ratio 10.55 10.32 6.33ROCE(%) 21.15 22.43 32.51ROE(%) 32.58 36.30 47.45Debt/Equity Ratio 1.45 1.34 1.16

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Here from the above information I found that the Sales, Book value, PE Ratio are increased continously in 2009 as compared to 2008 and 2007 but Jindal steel should concentrate on Net Profit margin because it has decreased in 2009. The debt- equity ratio is increased which is not good sign but in this company is under controlled which is good sign. The investor of this company should take some preventive step before invest in this company for longer period of time. Investor can hold this share but should not buy.

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PART III

FINDINGS AND SUGGESTIONS

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FINDINGS

Indian steel industry the world’s fifth largest seems to be among the top three in upcoming four to five years. Most of the steel industry products are used in Automobile, Housing, and Infrastructure development. During economic slowdown the steel industry was under negative growth since then it has come out of that.

Following table shows the comparative analysis of the three steel companies on the basis of the performance, finance and liquidity Ratios. By doing this one can reduce the risk and take better decisions

Table22. COMPARATIVE ANALYSIS FOR THE YEAR ENDED 2009-2010

Companies Tata Steel SAIL Jindal SteelPerformance RatiosP/E ratio 8.54 12.11 41.02ROE (%) 22 23.87 24EPS 69.67 16.35 99.35Net Profit Growth 13.00 (12.00) (73.45)Book NAV/Share 337 68 500Dividend Payout Ratio 23 20.32 10.63DPS 16 6.02 10Liquidity RatiosCurrent Ratio 1.12 1.82 1.04Debt-equity Ratio 0.78 0.27 0.97Activity RatiosAsset turnover Ratio 1 2 1.04Debtors Turnover 46 16 39.72Inventory Turnover 9 6 8.08Sales (in Cr) 7339.34 13,280.44 5,204.97Current Market Value(Rs) 474.40 195.60 1.037.50

P/E Ratio of Jindal Steel is highest among the rest two higher P/E Ratio means investors are anticipating higher growth in future.

DPS of Tata steel is 16 for the year2009-20010 it means that company has gone through profits. There is not much difference in ROE (%) but the Book NAV/Share of Jindal steel is higher than

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others therefore the investors may feel that company is making profits out the money invested by them.

Sales of Jindal Steel are high but the growth in net profit is in negative it means it has sold at low margin that is because of decline in the prices of Steel . Debt/Equity ratio of Jindal steel reveals that it has equally dependent on both Equity and Debt. That create an impact that company is balanced and it is not dependent on either equity only or Debt. Asset turnover of SAIL is higher than other two which implies that the company is making low profit margins. Whereas Tata steel has shown around 1 indicating high profit margin. Debtors Turnover of SAIL is 16 which mean it takes 16days to collect money from the debtors so it creates impression that company products are reputed in the market. Collection period of 30 days is treated to good enough to trust the value of the goods and services provided by the company.

Figure22. Comparison of Net Profit margin

2005 2006 2007 2008 20090

5

10

15

20

25

SAILTata SteelJSW Steel

Years

Ratio

Table23. Comparison of Net Profit margin

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As we can see above graph of three companies as the initial stage of the SAIL it were met the very low ratio due to losses and the Jindal Steel was quite in struggle stage and its gone towards the down size as year ahead, and the most profitable company as we can say is that the Tata Steel because of its highly increasing mode of the ratio. And we compare the all three company the Tata steel company is quite preferable for the selection of the investments.

From the financial statements of Tata steel’s it is calculated the current ratio is 1.12 for the year 2008 and 2009. However it does not mean that higher current ratio depicts good company profile. It may signify greater unused cash or inventory carrying cost. If we take Earning per Share for the year 2008, 2009 which is 60.45 and 66.80 respectively indicates that EPS is increasing. It is good for the company as shareholders would be interesting in investing further as well for the prospect investors.

JSW Ltd. Financial statement reveals that its investments has gone up from 396.60 crore to 628.20 crore , reserves and surplus has gone up from 7,266.94cr to 8,730.04cr therefore the investment made could partially on credit as debtors have gone up from 399.05 to 696.39 and it loans have gone down.

SAIL Financial statement reveals that it current ratio is 1.82 which is less than the standard current ratio i.e. 2:1 this implies either the company has not sold its stock .

.

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Year SAIL Tata Steel

JSW Steel

2005 23.19 22.78 14.14

2006 13.79 23.53 14.98

2007 17.38 23.43 14.92

2008 18.16 21.09 3.23

2009 13.40 19.96 11.09

SUGGESTIONS

Table24. Share Price, EPS and PE ratio Movement

Company Share price(NSE)

Adjusted EPS PE Ratio Target Decision

FY 07 FY08 FY09 FY 07 FY08 FY09SAIL 192.54 14.70 17.43 15.12 7.85 8.82 3.92 206.45 BUYTata Steel 474.34 60.58 65.63 46.12 6.43 8.72 6.58 686.43 BUYJSW Steel 1037.50 86.67 55.96 79.46 10.34 10.18 6.26 1389.6 HOLD

I initiate coverage on SAIL with a BUY rating and a target price of Rs 206.45. SAIL is one of my top picks owing to its India focused operations, aggressive capacity expansion, modernization and strong balance sheet.

Although I expect Tata Steel’s profitability in Q1 of 2010 to be under pressure, we believe that the worst is behind. We are positive on the stock given 1) highly profitable Indian operation, 2) volume growth led by 2.9mntpa capacity expected in FY12, 3) Corus turnaround – Improved capacity utilization and leaner cost structure and 4) Partial resource integration in Corus with captive coking coal and iron ore expected by FY12. We recommend ‘BUY’ with a target price of Rs 486.43 per share,” the report said.

JSW Steel operates three domestic facilities with a combined production capacity of 7.8 million tonnes at Vijayanagar and Salem. This is expected to rise to 10.8 mtpa by the end of the current fiscal l(2010). The company is the least integrated steel producer among the top three producers, both Tata Steel and SAIL having their entire iron ore demand met by captive mines.

The company also operates a slab and pipe facility in the US which, due to the struggling US economy, continued to be a drag on the consolidated profits. Investors should HOLD the shares.

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Bibliography

www.moneyrediff.com

www.investopedia.com

www.tatasteel.co.in

www.jindalsteel.com

www.sail.co.in

Reference Books

Security And Portfolio Management by Prasanna Chandra, Published By:-TATA Mcgraw Hill

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